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1- SHIPPING: THE LOOMING CRISIS
2- LG & CRICKET WORLD CUP
3-
NEW DEVELOPMENT IN TAP GAS-PIPE PROJECT
4- MUTUAL FUNDS RIDING IN
5-
EVA SUPPLEMENT
6- STANDARD CHARTERED: ANNUAL RESULTS

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MUTUAL FUNDS RIDING IN

 

Mutual funds help maintain a diversified portfolio that otherwise is not possible due to funding constraints of an individual investor in Pakistan

 

     By HIRRA GULRAZE MIR
Mar 03 - 09, 2003
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A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a pre-determined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund.

There are different kinds of mutual funds, namely closed-end, open-end and hedge fund. A closed-end mutual fund issues a limited and fixed number of shares. It collects money from investors through an initial public offering (IPO) and uses this money to invest in securities. Open-end mutual fund creates new shares all the time. The investments of the fund are valued at "fair market" value, which is the closing market value for listed public securities.

Mutual Funds in Pakistan

Type of Fund

Public Sector

Private Sector

Open-Ended
Closed-Ended

National Investment (Unit) Trust (NIT)Investment Corporation of Pakistan (ICP)

Unit Trust of Pakistan (UTP)
Al-Meezan Mutual Fund
Asian Stocks Fund
Dominion Stock Fund
BSJS Balance Fund
First Capital Mutual Fund
Growth Mutual Fund
KASB premier Fund
Prudential Stock Fund
Safeway Mutual Fund
Tri-Star Mutual fund

 

 

Mutual Funds were introduced in Pakistan in 1962. Currently there exists one open-ended and eleven closed-ended mutual funds under private sector management. A third type of mutual fund, never practiced in Pakistan, is known as the hedge fund, Hedge funds refer to funds that can use one or more alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage.

Mutual funds help maintain a diversified portfolio that other wise is not possible due to funding constraints of an individual investor in Pakistan. Since they pay out ninety percent of their income and are also tax exempted they become all the more attractive. Capital gains are also tax absolved.

In our country small investors do not have professional skills or the time to monitor their interests. Mutual fund companies provide these professional skills and the management collectively. There past performance record evaluates that they attract investments ebullience being high incentives.

For an individual it is very difficult to readily get information and interpret it correctly and take timely action, which is eminently important in this market. Mutual funds not only need providential information but also an ample time for analysis. Another temptation for maintaining is that it can be easily redeemed, and there are no penalties for redemption.

While on the other hand, in Pakistan these portfolios are restricted under the (SEC) Security Exchange Commission and cannot be diversified like through out the world and are restrained to the stock exchange. Apart from this the SEC does not allow short selling in the mutual fund market in order to prevent manipulation of stocks. On the whole the mutual fund market in Pakistan is exceedingly dependent on the volatility of the stock market.

In 1980s, US mutual fund industry expanded as investment banks and brokerage began offering Mutual Funds. They also provided easy access through limited checks-writing privileges, because of these features the volume expanded rapidly and bank deposits contracted. However, the growth rate ceased as banks had started to offer competitive products then.

Mutual funds in Pakistan are doing very well under the present regulations but in the coming years the yields are expected to come under pressure as the Mutual Fund Companies are highly depended on the Stock Exchanges. And according to the implementation to be taken in 2005 the World Trade Organization will affect our local industries that indirectly will have a vital impact on our stock market. The SEC should frame new regulations and let them diversify their portfolio such as in commodities, futures, indices derivatives, real state etc. In addition there should be a check from SEC on sponsors for the safe guard of regular investor. This would rejuvenate our economy but make us internationally competitive in the market, create jobs, appreciate the rupee and bring along a fringe of impetuous benefaction to our country.